WEAKNESSES

Extreme ethnic tension between the Muslim Rohingya minority and the Buddhist majority

International condemnation of the discriminatory policy against minorities

The role of the Central Bank has yet to be concretely defined

Undiversified economy

Underdeveloped financial sector

RISK ASSESSMENT

Growth will remain very strong

Myanmar’s economic growth is set to remain one of the region’s highest in 2018. Activity benefited from the democratic transition and the arrival to power of the National League for Democracy (NLD) in April 2016. Nevertheless, the dynamism will be relatively dependent on the establishment of a clear economic agenda by the government in 2018, institutional reforms, and the resolution of the crisis of the Rohingya population – a Muslim minority in a Buddhist majority country, in the state of Rakhine (western part of the country).
The agricultural sector, which benefited from favourable climatic conditions in 2017, will continue to develop in 2018, notably due to large water collection from dams. Burmese production is expected to benefit from relatively high demand for rice, both domestic and external (rice being the main export of the primary sector).
Public and private (especially foreign) investment in infrastructure is increasing. The construction sector should be the first to benefit from this, with a predicted growth of 16.4% in 2018. Chinese companies have built a 771-kilometre gas pipeline, operational since 2017, and have seven major infrastructure projects in the Irrawaddy Valley, the country's main river. The development of tourism should also continue, despite the lack of hotel accommodation. Although poverty remains widespread, private consumption (50% of GDP) will likely continue to support growth in 2018, benefiting from the increase in the level of wages and transfers from Burmese residents abroad. This reflects a household savings rate which remains very low. Weaknesses in the banking sector weigh on growth. In the context of establishment of new regulations (from July 2017), credit growth has been slowing, after it had reached a peak (31.4% in 2015/2016), mostly in the construction and property sectors. Inflation will remain high as a result of expansionary economic policies, rising wages, housing prices, and growth in domestic demand.

Dual deficits and an increase in FDI

Efforts to bring the budget deficit under control are expected to continue in 2018. However, the change of fiscal year in October 2018 (from October to September instead of April to March currently), after a six-month transition period, is likely to weigh on the deficit. Public expenditure accounts for nearly 15.6% of GDP, of which 31% is military expenditure. Nevertheless, social and educational spending will remain at a high level. The state will invest mainly in the construction of new economic zones in Thaliwa, Dawei and Kyaukpyu. At the same time, with revenues being restricted by weak natural gas prices, the government wants to push ahead with reforms aimed at increasing the tax base, which would help boost budget revenues (tax collection at 8% of GDP in 2017).

The right of passage of gas and oil between extraction sites and China will yield USD 13 million annually. The government is set to continue to rely less and less on the use of loans from the central bank to finance its deficit. The goal is to go from 40% of the deficit in 2017 to 20% in 2018. In terms of external accounts, the current account deficit is set to deepen in 2018. Exports should continue to increase, especially to China (largest trading partner), boosted by the construction of the gas pipeline (gas is the most exported product – 39% of total exports). Imports are set to increase further, including transportation and construction materials. The current account deficit will likely be offset by very strong FDI inflows. To improve the economy's resilience to external shocks, authorities are likely to move towards a floating exchange rate of the kyat in 2018.

Democratic transition in a context of inter-ethnic conflict

In political terms, the country has seen an unprecedented period of liberalisation. Partial parliamentary elections were held in April 2012, the first elections in which all elements of the opposition had taken part since 1990. The National League for Democracy (NLD) won 43 of the 45 seats up for election, enabling its leader Aung San Suu Kyito to become an MP. In the 8th November 2015 general election, the NLD won over 80 % of the vote, and subsequently entered into office in April 2016. Htin Kyaw was elected President by Parliament and Aung San Suu Kyi was appointed as “State Counsellor” – a role specifically devised for her, as the Constitution prohibits her from becoming President because of her foreign family links. The partial legislative elections of April 2017 maintained the position of the NLD, which lost only one of the 255 seats it held.
European and US sanctions could return in 2018 if the Rohingya situation does not improve. Following attacks on police stations, the Myanmar army’s campaign of repression against the Rohingya population in the state of Rakhine, led to the departure of more than 500,000 Muslims, who mostly moved to Bangladesh. The UN refers to this situation as "ethnic cleansing". The repatriation agreement signed in January 2018 between Myanmar and Bangladesh has yet to enter into force, delayed by concerns over repatriation conditions, as well as citizenship status of the given population once they return to Myanmar. Finally, the business environment remains very precarious. Myanmar is one of the poorest ranked countries in the world according to the World Bank's Doing Business index (170 out of 190).